Question

Cost of Revenue from Operations

Purchases

Opening Inventory

Inventory Turnover Ratio will be

Options

• 2 Times

• 3 Times

• 1.5 Times

• 4 Times

Answer 1

3 Times

Explanation:

1. Closing Inventory

\[\text {Cost of Revenue from Operations} = \text{Opening Inventory} + \text{Purchases} - \text{Closing Inventory}\]

$$6,00,000 = 1,00,000 + 8,00,000 - \text{Closing Inventory}$$

$$\text{Closing Inventory} = 9,00,000 - 6,00,000 = {3,00,000}$$

2. Average Inventory

$$\text{Average Inventory} = \frac{\text{Opening Inventory} + \text{Closing Inventory}}{2}$$

$$\text{Average Inventory} = \frac{1,00,000 + 3,00,000}{2} = {2,00,000}$$

Calculate the Inventory Turnover Ratio (ITR)

$$\text{Inventory Turnover Ratio} = \frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$$

$$\text{Inventory Turnover Ratio} = \frac{6,00,000}{2,00,000} = {3\text{ Times}}$$